E. H. Beach has withdrawn 5 shares series No. 1, on which he has paid dues to and including July meeting. When stock is withdrawn debit Capital Stock account with the holding value of the shares at the last annual meeting, debit Dues account with the dues paid thereon during the current year, and credit Loss and Gain with the profits retained as in the above entry. T. H. Hogsett, the Attorney for the Association, has paid over to the Treasurer the proceeds of the foreclosure of J. R. Stone. The decree of foreclosure cancels to shares 2d, series of stock, pledged by J. R. Stone, to secure loan, and applies the withdrawal value on Feb. Ist, 1896, of said shares thereon. Withdrawal value on Feb. 1st, The withdrawal value of said shares as applied $ $24 86 94 86 258 54 (Profits retained on cancelled Stock 2d series, 10 shares at 16c.) 24 86) I 60 The Attorney for the association reports the completion of the foreclosure of the mortgage to the Association made by C. H. Nichols, and that on May 5th, 1896, he bid off on behalf of the association the mortgaged property at $1,900, and that a judgment for deficiency of $200 has been entered in favor of the association against C. H. Nichols. The decree of foreclosure cancels 10 shares 3d series stock, pledged by C. H. Nichols, to secure the loan and applies the withdrawal value on Jan. 30th, 1896, of said shares thereon. Withdrawal value Jan. 30th, 1896, of 3d series, IO shares at.......... Less arrears of dues....... $60.00 Less fines on arrears..... $25.00 Withdrawal value of said shares as applied..... $ The Attorney's bill of costs and expenses of the audited and ordered paid, amounting to $150. (3rd series 10 shares at $16.) 245 00 85 00 160 00 foreclosure is $ 160 00 Capital Stock..... Other entries of a similar nature might be given, but it is thought these will suffice for a clear understanding. 150 00 CHAPTER THIRTY. Depreciation. Depreciation is the actual loss upon assets which are diminishing in value, or it is an estimated sum charged against gross revenue; which amount is considered sufficient to replace the capital used up or reduced by wear and tear. The loss or gain of an undertaking for any period is not simply the difference between the receipts and expenditures during that period, nor the current value of plant always the amount which has been paid for or expended upon it. Importance of Depreciation. In ascertaining the cost of production or manufacturing cost, one of the most interesting questions, as well as one of more or less controversy, is that pertaining to the charge for depreciation. The method of providing for this charge and the amount of the same is the ever fruitful source of differences, which, when settled, affect the net results or profits of the period's transactions. A manufacturer produces goods for sale; production is the result of consumption. The value and amount of such consumption represents the gross cost of the article manufactured. The difference between the value of the material consumed and the value or quality of the article manufactured is the loss or gain of the manufacturer. The importance, therefore, of knowing the actual value of that which is consumed, or the actual gross cost is readily seen to be indispensable to a successful manufacturing business. Work and Wear. The raw material, labor, rent charges, with fuel expenditure, can be accurately ascertained, but in the manipulation of them, work has to be performed; and as work means wear, the value of the wearing must be first ascertained before the cost of the product can be determined. In this consumption of raw material, labor, designing, fuel, machinery and buildings, an essential difference exists between the different items. Raw material, labor and fuel are absolutely consumed within the time occupied in production; while machinery and buildings are con sumed over a lapse of years. From year to year neither the exact value of the quantity consumed nor the exact value of the quantity remaining is known-but an estimate of the residual value remaining after its useful existence and the value of the usefulness of the machinery or buildings is spread over the number of years of its determined life. Leases for a definite number of years afford a very appropriate illustration of the rule of basing the depreciation rate upon the life of the object. This is very simple, but when we come to the Wear and Tear of Machinery, we enter a difficult field, wherein one is dependent for the necessary technical knowledge of these assets upon the opinion of those who, not unfrequently, are opposed to a proper provision being made for such reduction. A brief resume of the causes for such depreciation will be of use in determining the amount of the deduction. 1. Improvements which reduce the value in use of the present machine. 2. Introduction of new machinery combining two or more operators. Depreciation of the same kind of machinery depends upon the character of the business or class of trade engaged in, and the exigencies and nature of the particular business will determine whether the rate of depreciation be more or less. In many kinds of business it may be found advisable, for the purpose of estimating depreciation, to divide the objects into classes, for although the general result of the business operations during a given time may be normal, yet by dealing separately with the depreciation of each class of appurtenances it may be found that some of the departments show abnormal results. A general rate of depreciation may lead to neglect what may comparatively be more profitable operations; or to push a department of the business which, if it bore its full proportion of depreciation, would yield less than the average rate of profit. This separation of departments is the more desirable as the same method of allocation will obviously not apply to loose plant and tools, and to plant and tools which are fixed. Methods of Calculation. Many different views prevail as to the best way of dealing with these questions, and owing to trades and processes of manufacture varying widely, it is impossible to lay down invariable rules. Questions as to the particular practice to be followed in any individual case must, to a large extent, be left to the judgment of those most intimately acquainted with the surroundings of the business. The question of maintenance is very closely associated with that of depreciation. There might be said to be four factors which enter into the determination of any rule for arriving at the deterioration which has taken place. Ist. The cost of an article, whether it be a building, machinery or other asset. This may be either the cost price or, in case of the transfer of an established business, the estimated value of the object. 2nd. Its estimated tenure of life, regard being had to its functions and the conditions under which they are performed. 3rd. The extent and value of the renovation or restoration received by it from time to time. 4th. Its residual value, either as scrap or as an implement which, though possibly applicable to other uses, is no longer fit for its original purpose. Whatever rule is determined upon, it is important that it should be consistently adhered to for a term of years, so that its accuracy may be fairly tested; in order to avoid the accounts of particular years being treated abnormally, which in the case of corporations, whose shares are constantly changing hands, would lead to much injustice being done to individual proprietors. If the various machines are divided into several classes, the question arises as to the rate of depreciation and on which account. The residual value of the machines may be based upon the following methods. Ist. That which expires by "Life," leaving no residual value, should be divided by the given number of years upon its original cost. 2nd. That which leaves a residue of value under any circumstances should be depreciated upon its diminishing amount. |